Xponential Fitness, Inc.

Greetings, and welcome to the Exponential Fitness, Inc. Third Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. You may be placed into question queue at any time by pressing star one on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Avery Wanamaker, Investor Relations. Please go ahead, Avery.

Thank you, Operator. Good afternoon, and thank you all for joining our conference call to discuss Exponential Fitness third quarter 2024 financial results. I am joined by Mark King, Chief Executive Officer, and John Malone, Chief Financial Officer. Sarah Luna, President, will also be available for questions. A recording of this call will be posted in the investor section of our website at investor.exponential.com. We remind you that during this conference call, we will make certain forward-looking statements, including discussions of our business outlook and financial projections. These forward-looking statements are based on management's current expectations and revolve risks and uncertainties that could cause our actual results to differ materially from such expectations. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligations to update the information provided on today's call. In addition, we will be discussing certain non-GAAP financial measures in this conference call. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures that we provide. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings release that was issued earlier today prior to this call. Please also note that all numbers reported in today's prepared remarks refer to global figures unless otherwise noted. As a reminder, in order to ensure period-over-period comparability and consistent with our reporting methods since IPO, we present all KPIs on a fully pro forma basis. meaning for the full KPI history presented, we only include brands that are under our ownership as of the current reporting period. For the period ended September 30th, 2024, this includes AKT, BFT, Club Pilates, Cycle Bar, Lindora, Pure Bar, Rumble, Stretch Lab, and Yoga 6. I will now turn the call over to Mark King, CEO of Exponential Fitness.

Thank you, Avery, and good afternoon to all of you. I'm excited to speak with you today and share some updates from my first hundred plus days as CEO of Exponential. I want to start with what's great about Exponential, but I also want to talk about some of the challenges we're facing. But let's get started with what's going well. My three key takeaways are the following. First, and perhaps most importantly, People really love what Exponential offers. On one level, that's self-evident from the growth in our membership base and total studio visits. But I'm beginning to appreciate just how integral our health and wellness experiences are to our members' weekly routines. Second, our domestic and international growth have been terrific. And as we'll discuss in more detail, I think I probably underestimated the extent of the future opportunity. Third, my feelings haven't changed at all about this 100 days in. This is just a great business model. Once we've worked through some of the challenges I'm going to discuss, I expect our business to become highly profitable and cash generative at scale. I pride myself on being candid, so let me be equally clear about some of the challenges we're facing, many of which are commonly faced by companies experiencing rapid growth. Challenge number one is infrastructure and processes. When companies grow very quickly, it's hard for these things to keep pace. In order to achieve sustainable, profitable growth, we must implement the infrastructure and processes needed to adequately support our franchisees and studios at scale. Challenge number two is fostering a culture that is conducive to long-term success. At Exponential, this means shifting from a sales-first to a marketing and operations-driven culture that places franchisee success at the center. One of the main reasons we were so successful at Taco Bell was that supporting franchisees was our core focus. It drove every organizational decision we made. Everything we do must focus relentlessly on delivering a best in class franchisee experience and maximizing franchisee profitability. Challenge number three is figuring out where are we going to allocate our capital. Today, some of our brands are clearly outperforming others. We are working to optimize performance across the portfolio, but if the performance gaps continue to exist, we will not be afraid to consider further divestitures. With this as a backdrop, I'd like to share my vision for the company as I promised I would do during my first earnings call in August. That vision has five key pillars. Number one, our ambition is to become the franchisor of choice in health and wellness. We will do this through pillar number two, delivering a world-class member experience. Pillar number three, transforming our data capabilities to become a data-driven company. And pillar four, to create a culture of innovation. Our fifth pillar is to significantly build out our international footprint. Looking at pillar number one, First and foremost, we need to become and remain the franchisor of choice in the health and wellness category. Our portfolio must be made up of relevant and growing brands that provide franchisees with profitable investment opportunities. As I alluded to a moment ago, we're going to focus on improving every part of the franchisee experience, from the initial selection process to daily studio operations. We need to revamp the recruiting process to ensure we attract the most qualified franchisees, and we need to make operating our studios easier. We plan to, by year end, institute physical operating playbooks for all of our brands, which will include step-by-step instructions of how to open and operate profitable studios. We will also implement annual franchisee audits to ensure studio operations are evaluated for consistency and to provide coaching and support for franchisees. Our second pillar, delivering a world-class member experience, includes all of our member interactions, be that inside or outside the studio. We need to become better at tracking our members' entire journeys and ensuring we deliver best-in-class experience at every touchpoint. Some of our planned technology improvements will help with this. The goal here is to reduce friction for members with things like sign-up experience and scheduling. We want to make it easier for members to communicate with studios. We want to collect more feedback. And we want to do all of this in the context of continuously gathering data so we can provide a tailored experience. We expect all of this to drive increased engagement, lower attrition, and higher member lifetime value. Our third pillar is to become a data-driven company. I want us to start drawing on predictive analytics to guide our operations. I want to implement a culture of analytics-based decision-making. This will optimize franchisee operations and improve the member experience, as well as drive insights and efficiency throughout the organization. Our fourth pillar, creating and fostering a culture of innovation, is critical to all aspects of driving growth and efficiency. I'm implementing a culture that is constantly challenging the status quo We are engaging all of our employees to discover new, more effective ways to support franchisees. This encompasses everything from the member experience to the workouts to lowering studio build-out costs. On studio build-out costs in particular, I think we can make our supply chain more efficient by assessing every supplier in our system, introducing new suppliers to drive cost competition and ultimately concentrating spend to gain purchasing power. Lastly, our fifth pillar is to significantly build out our international footprint. International is a huge opportunity that I plan to make a core focus. In my experience, international must be treated as a key initiative with significant support to be successful. I've experienced this success firsthand at two previous companies. When I became president of the TaylorMade Golf Company in 1999, only about 20% of our business was outside the US. When I left the company, International was a billion dollar business representing approximately 55% of the company's revenue. Additionally, and more recently, during my four years at Taco Bell, we more than tripled total restaurants outside the US. I understand how to grow a business internationally, and I believe Exponential has all the attributes needed to capitalize on this opportunity. Speaking here today, I see no reason why Exponential shouldn't have as many studios operating outside the US as it does domestically. We will leave some of the specifics for the year-end call, but it's worth noting that over my career, I found that growing a significant presence in select countries with large potential is more effective than focusing on many small markets. Japan is one of the international opportunities where we have been successful, and Japan typifies the kind of market where we will allocate material resources. Furthermore, It's been my experience and remains critical that we continue to identify the right international master franchise partners who understand their local markets and are well capitalized to rapidly scale. Before we get to financials, let me spend a few minutes letting you know some of the tactical progress we've achieved in my first 100 days. First, everything we do at Exponential starts with people. I've begun augmenting the executive leadership team to ensure we are well positioned to execute on our vision. I hired a new head of retail, John Kawaja. John is a seasoned operator. He was at Adidas from 1988 to 2004, rising all the way from footwear manager to head of marketing for North America. After that, John spent 10 years at TaylorMade, where he, among other things, served as president when I was CEO. John has held various other leadership roles since. I'm confident John is the right person to optimize our retail operations. I am also in the process of hiring a CMO, a CTO, and a COO. On the data-driven company front, we have been working with a leading data consultancy firm since July. We are automating the reporting of key operational data so that data can become available to our teams in real time. The initial data dashboards have already started rolling out within the organization for user feedback, with many more coming before the end of the year. Finally, and perhaps most importantly, Since day one, everything I've done has centered on moving away from a sales driven culture and towards a marketing and operations focused organization, all in ultimate support of franchisees. Everything we do is geared towards increasing studio traffic and lowering studio build out and operating costs, which will maximize franchisee returns, and translate to best-in-class franchisee experience. Needless to say, by helping our franchisees win, of course, exponential wins too. As I started out with my remarks, there are a lot of opportunities and challenges here. At one point or another, every hypergrowth company must architect a path to sustainable profitability. I would venture to say that every CEO who has been successful in that regard knows that success comes down to people, processes, exceeding the expectations of your stakeholders, and building a culture of relentless innovation and accountability. And that's exactly what I plan to do here. Before turning the call over to John, I'd like to provide a heartfelt thanks to John, our Chief Financial Officer, for all his support prior to my arrival and over the past 100 days. I don't have to tell all of you how integral John is to the success of Exponential, but he's really gone above and beyond as a partner during my first 100 days. And I look forward to having him by my side as we make the most of the opportunity in front of us. With that, I'll turn the call over to John.